Family Trusts

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In its simplest terms a Family Trust is an entity that acts as a 3^rd party to take ownership of family assets for the medium to long term benefit of family members.

These assets normally comprise of:

• Family Home & other properties
• Company Shares
• Financial Investments
• Life Insurance Policies
• Other assets such as art collections, inheritances etc.

There are 3 parties to a Trust

1. The Settlor (or Settlors): Create the Trust by transferring assets to it
2. The Trustees: Look after & control the assets on behalf of the Beneficiaries
3. The Beneficiaries: the persons who benefit from the Trust

Note: a Settlor can also be a Trustee and a Beneficiary

How a Trust Functions:

• The Settlors sell property to the Trust at current market value.
• The Trustees have no money to purchase the property but arrange an unsecured loan from the Settlors to settle the purchase
• The Settlors then progressively forgive repayment of the loan by making a gift of $27,000 a year for each Settlor.
• Any capital gains or income from the property accrue to the Trust, not the Settlors.

Note:

Property has to be sold at true current value, as sale at a lower value would be considered a ‘gift’. Gift duty has to be paid on any gift over $27,000 in any 1 calendar year

Benefits of a Trust

The overriding benefit of a Family Trust is that the assets belong to the Trust, not an individual. This means that what were formerly your personal assets may no longer be at risk due to business failure, means and asset testing or marriage or partnership breakups. The main specific benefits of a Trust are:

• Protection from creditors
• Orderly distribution of assets to family members (greater protection than a will)
• Qualification for Rest care subsidies
• Tax advantages (Trust maximum tax rate is 33%)
• Future protection from possible death duties & capital gains taxes
• Protection from Property Relationship claims

Who needs a Family Trust?

Individual circumstances vary, but combinations of the following would be taken into account when advising on whether you need a Trust:

• You have children that will become subject to the Property Relations Act at some stage during their lifetimes
• You intend leaving assets to your survivors
• You have investment assets that will appreciate over time
• You are a company director and/or shareholder
• You have business obligations involving personal guarantees
• You have business creditors
• You own your own home

Other things you should know about Trusts

Trusts do not provide instant protection for your assets. It may be several years before your assets are secure. This is for 2 reasons:

• Assets sold to a Trust may generally be subject to challenge within 5 years of the sale. This is to guard against ‘hiding’ assets to protect against a known event
• Where the Settlors make a loan to the Trustees to enable a purchase of their assets, the current balance of the loan becomes an asset of the Settlors. Total protection only starts once the gifting is complete and the appropriate time period has elapsed.

Hence the need is to act sooner rather than later. Your Business Team Limited are experts in Trust management, asset protection and tax minimisation.

For more information and a confidential no-obligation review of whether a Family Trust is in your best interests, contact  Dave McPhedran